– Written by
Frank Davies
STORY LINK Euro to Dollar Forecast: 1.18 Stalemate Ahead of Key Jobs Report
The Euro to Dollar exchange rate (EUR/USD) is holding close to 1.18 as investors weigh diverging forecasts on the US dollar’s trajectory into 2026.
While Citi FX expects the pair to fall toward 1.11 as stronger US growth lifts real yields, Danske Bank maintains a bullish EUR/USD outlook, targeting 1.25 over the next 12 months on continued dollar weakness.
With positioning stretched and geopolitics clouding near-term direction, EUR/USD remains range-bound as markets turn their focus back to US labour-market data and Federal Reserve policy expectations.
EUR/USD Forecasts: Stalemate
Citi FX forecasts that the Euro to Dollar (EUR/USD) exchange rate will slide to 1.11 at the end of 2026 with the dollar making wider gains during the year.
Danske Bank, however, is still bearish on the dollar; “We continue to forecast higher EUR/USD rate over the coming year, and we lifted our 12M forecast to 1.25 (from 1.23) last week. Short-term downside risks to our view are related to geopolitics and positioning.”
EUR/USD settled close to 1.18 with neither currency able to make a breakout.
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SocGen expects market positioning will be important; “The euro is supported by growing optimism about the German economy, and the dollar is unlikely to rally strongly until the focus shifts back to US growth and Fed policy. But positioning data still shows a large (and growing) net USD short position, limiting USD weakness from here.”
The dollar dipped in immediate reaction to the Supreme Court decision to block President Trump’s IEEPA tariffs, but regained some ground later in the week.
During the week ahead, the focus will return to the US labour market with the monthly jobs report scheduled for Friday. The ADP private-sector payrolls data will also be released.
At this stage, markets are very confident that the Fed will not cut rates at the March meeting, but a very weak jobs report could change the narrative.
Citi expects a stronger US economy to emerge which will have important currency consequences; “We expect a combination of improving business sentiment and seasonality can support US data improvement in H1. That should become more evident in coming months, and the USD rally we have been looking for should benefit.”
It added; “Real rates should turn higher in the short-term, either as energy prices stabilize and even pullback or as better data cements limited Fed cuts for this year.”
Citi is more cautious over the dollar outlook late in 2026 as it expects evidence that the German fiscal boost is having a greater impact on the economy. It added; “we expect EURUSD will bottom over this window as investors begin to price in a positive fiscal impulse from defense spending.”
It also sees scope for a dollar wobble; “We suspect the bottom is likely ahead of US midterms, as these could introduce additional headwinds for the USD.”
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